KPMG Suggests Macro Trends That Will Determine Nigeria’s Economy In 2021

KPMG Nigeria has suggested 10 macro trends that will determine Nigeria’s economy in 2021.

The Macro trends suggested by KPMG are -Global dynamics, fiscal sustainability, uncertain forex environment, stringent policy posture, constrained productivity and accelerated credit penetration, cautious private sector investment activities, emerging digital economy, socio-political threats, and consumer pressure points.

According to the Associate Director, Strategy and Economics, Olusegun Zacchaeus, Nigerians are expected to embrace more pressure from the global economy as the modest recovery in 2021 is faced by the second wave of Coronavirus pandemic.

He said: “The emergence of a new democrat president will have implications on the global economy. The bigger fiscal stimulus package totaling US$2.5 trillion from 2021 to 2024 is expected to drive recovery.

“On oil price dynamics, bilateralism with possible easing of trade tensions between the US and China. Possible catalyst for distortion in oil prices given strong advocacy for shift away from fossil fuel.

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WTO expects a significant downturn in global trade in 2020 between 13% and 32%, and some recovery in 2021 at 8%. Risks to the outlook include a second wave of COVID-19 with the results being very sensitive to the length of time that the Covid-19 threat remains in place or trade restrictions.”

Speaking on fiscal sustainability, he stressed that Nigeria’s fiscal flexibility is restricted by a high interest bill of government revenue and inefficiency in non oil tax collection.

 He also noted that the effect of new tax policies could be traced down to economic outputs. He however advised the integrated revenue monitoring system (IRMS) on the need to implement easy revenue recognition.

In the same vein, Zacchaeus stated that the foreign exchange environment will always be under pressure from low foreign exchange earnings.

He said: “The foreign exchange environment will remain under pressure exacerbated by lower FX earnings. Fair value estimation at N422, reflecting a 9% overvaluation of real effective rate. Fair value may improve but rates will still be misaligned in 2021.

“Liquidity is low due to the pressure on foreign reserves and sharp fall in capital importation by -78% in Q2 2020. Liquidity will remain challenged given oil price outlook and capital flows.”

He pointed out that Volatile Uncertain Complex and Ambiguous (VUCA) policy environment has an adverse effect on the overall growth on the economy.

His words: “The nature, speed, volume, and magnitude of change is not predictable e.g. rising Inflation and low aggregate demand. Lack of clarity resulting in multiple and conflicting interpretations.

“Lack of predictability in issues and events make it difficult to see future outcomes or make decisions. The focus will be more on social vs economic growth.”

While addressing the issue of accelerating credit penetration, KPMG stated that despite increased supply to private sectors, Nigeria continues to be credit-starved.

“Increase in CRR from 22.5% to 27.5% to tame excess liquidity and inflation. The Reduction in MPR by 100bps from 12:5% to 11.5%. Development Finance Initiative as a policy tool will enhance credit penetration, Deepened credit penetration is expected to continue in 2021.

Meanwhile, according to KPMG, Emerging digital economy is expected to experience growth in 2021.

On the influx of start ups in the segment, KPMG stated that the total funding in Nigerian startups in 2018 up to $178 Million. Entry of new players, 15 startups raised more than $1million in the fintech segment.

“Tech start-ups have begun to attract funding from venture capital firms, however, foreign investors provide over 80% of this funding.

Finally, KPMG believes that the pressures faced by consumers such as unemployment and erosion of purchasing power, due to inflation will contribute to additional pressure points. Thus,  as consumer continues to face these challenges, consumer spending will remain under pressure.

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